The new Hotmail now gives you the ability to collapse or expand groups of items in the Sidebar, with the same "disclosure triangle" you are already familiar with if you use Windows Live Mail or Windows 7, both of which use the same metaphor (and triangle button) to expand or collapse groups of folders in a left navigation pane. Among other things, this lets you show or hide the email folders displayed on the left side of the screen - a godsend when you have accumulated new folders for just about every organizational topic over the years.
The ability to hide your folders obviously implies that you can display them back: just click on the same triangle (which changed orientation and color after you hid your folders), and Hotmail will expand that Sidebar "Folders" category again, showing all your standard and custom folders on the left, usually as a scrollable list if you have attempted to stay organized!
Follow these steps to hide your folders:
Now that you know how to hide your email folders, you can leave them that way until you need to access the emails contained in one of them, and afterwards click back the triangle to hide all folders out of view once more.
Tip: Windows Live Hotmail will "remember" your setting between sessions, and re-apply your preference - either keep all email folders showing (default), or will automatically hide them if this is how you had them last time you logged in.